Wendell Motors manufactures and ships small electric motors and drives to a variety of industrial and commercial customers in and around St. Louis. Wendell is a small operation with a single manufacturing plant. Wendell’s products are different from other motor and drive manufacturers because Wendell produces only small motors (25 horsepower or less) and because its products are used in a variety of industries and businesses that appreciate Wendell’s quality and speed of delivery. Because it has only one plant, Wendell ships motors directly from the plant to its customers. Wendell’s reputation for quality and speed of delivery allows it to maintain low inventories of motors and to ship make-to-order products directly.
As part of its ongoing commitment to lean manufacturing and continuous process improvement, Wendell carefully monitors the costs associated with both production and shipping. The manager of shipping for Wendell, Tyler Jenkins, regularly reports the ship-ping costs to Wendell’s management team. Because few finished goods inventories are maintained, competitive delivery times often require that Wendell expedite shipments. This is almost always the case for those customers who operate their business around the clock every day of the week. Such customers might maintain their own backup safety stock of a particular motor or drive, but circumstances often require that replacement products be rushed through production and then expedited to the customer.
Wendell’s management team wondered if these special orders were too expensive to handle in this way and if it might be less expensive to produce and hold certain motors as finished goods inventory, enabling off-the-shelf delivery using less expensive modes of shipping. This might especially be true for orders that must be filled on a holiday, incurring an additional shipping charge. At the last meeting of the management team, Tyler was asked to analyze expedited shipping costs and to develop a model that could be used to estimate the cost of expediting a customer’s order.
Donna Layton, an industrial engineer in the plant, was asked to prepare an inventory cost analysis to determine the expenses involved in holding additional finished goods inventory. Tyler began his analysis by randomly selecting 45 expedited shipping records. The sampled data can be found in the file Wendell Motors. The management team expects a full report in five days. Tyler knew he would need a model for explaining shipping costs for expedited orders and that he would also need to answer questions about what effect, if any, shipping on a holiday had on costs.
Required Tasks: Write a report to the managers covering the following:
Briefly summarize the data (include an explanation of the results of descriptive statistics of the data, variables included, how the data was collected, and any pertinent information about the data available in the case study)
Identify the central issue in this case.
Identify the dependent and independent variables.
The following results table have been obtained from the dataset. It is from the answer key provided by the publishers.
Identify and explain the rational for using this type of statistical test.
Justify the use of a dummy variable – what factors make dummy variables necessary? Explain the major guidelines for the use of dummy variables
Describe and explain the statistical significance of the independent variables in the multiple regression results.
Explain what information the interval estimates convey in your report.
Describe and explain the economic (or financial) significance of the estimates of the coefficients of the independent variables.
What is the appropriate interpretation of the coefficients on the dummy variable?
Explain the financial significance of the estimate of the coefficients on the dummy variable?
Explain the overall fit of the model (its ability to explain the variation in the costs of operations)
